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Bienvenido Amigo!

Property frenzy in Baja California

According to Lara and Ruffo, Hutchison paid about $5 per square meter compared to the average $7 per square meter Ruffo and Ensenada businessman Roberto Curiel Amaya paid Ejido Heroes de Chapultepec for their tideland property. Initially, Ruffo said, he was acting as a consultant for interested parties but as the project appeared more feasible, he decided to pair with Curiel, a builder with extensive interests in sand, gravel and rock, to play a larger role under a company they formed called Puerto Colonet Infrastructura. “I will certainly be a bidder,” he said. “Now we are trying to put together a consortium.” Besides the two communal groups that have sold land, three others – Ejido Veinte Siete de Enero, Ejido Diaz Ordáz and Ejido Mexico, which is also known as Ejido Colonet – hold property in the area where the port, railroad and new city are to be built. It's up to developers to secure land for the port project, said port director Jáuregui. Property for a 180-mile rail line from the port to Mexicali is likely to be obtained through eminent domain by the state of Baja California, he said. From the port, it is expected to run along the San Rafael River valley north to the border near Mexicali.

'Now money's involved' The Ejido Morelos judicial dispute, Jáuregui said, “could interfere with the project if it is not properly solved.” Once forbidden from selling their land, the collective groups are permitted to do so under a 1992 change in Mexican federal law. After that change, José Luis and Rubén González and two of their uncles bought a few parcels to farm on their own from the other members of Ejido Villa Morelos, which was formed in 1958.

“Those of us who were cut out of the cake are the pioneers of the ejido,” Rubén González said. “The coastal property that was sold is common area belonging to all (22 members). Nobody complained before, but now money's involved.” Interest in Punta Colonet continues to grow among visitors and locals alike, Lara said. Representatives of four of the ejidos and a group of business leaders from San Quintin, the coastal town to the south, met with him recently to learn what he knows about the project and the land transfers. Lara has no plans to sell his cliff-top property, which extends to the tidelands below that will make up the bottom of the U-shaped facility. “I won't sell,” he said, “because I can't get now what it's going to be worth eventually.”

January 31, 2006

Mexico Opens Real Estate Mortgages to Foreigners
By Karla Ramírez

In Mexico, some SOFOLES (Limited Objective Financial Corporations) are now offering mortgages to foreigners, a niche that is unattended to by local financial institutions. This is the case with GE Money, a subsidiary of General Electric, and Su Casita Mortgage. "The main challenge with credit when the buyer is a foreigner and the property is in Mexico, is to coordinate the systems of origination," explained Edwin Vega, Director General of GE Money Mortgage Credit (GE Money Crédito Hipotecario).

"In the United States we do 100 percent of the origination (work), with standards that the client is accustomed to using, such as (credit) bureau analysis, and we do the appraisal of the property in Mexico," he said. It is for mortgage credits in US dollars, at a rate of 7.99 percent, for up to 30 years.

GE Money launched this product in late 2005, with 20 credits having been granted to date that represent nearly US$20 million. The projection for 2006 is to arrange US$800 million in individual credits.

Su Casita Mortgage (Hipotecaria Su Casita) has also started to compete in this niche. The product Su Casita offers to foreigners is up to 25 years, with rates of ten percent.

"We have clients who are foreign residents in Mexico, (and) we make no distinction in the type of credit according to existing legal restrictions. For example, to buy on the coast it is through an escrow trust (fideicomiso)," said Jorge Yarza, Divisional Director of Su Casita Mortgage. Last September AMSFOL, the Mexican Association of Limited Objective Financial Corporations, announced the availability of "Binational Mortgage Loans," with a percentage of financing that could reach 80 percent, and that offer longer time and fiscal advantages, said Linda Neil, Director of The Settlement Company, a firm that offers consulting services to foreigners in order to buy real estate in Mexico.

EDITED TRANSLATION FROM REFORMA, JANUARY 31, 2006, MEXICO CITY)

Baja Land Investment:
Look Before You Leap!

By Tom Gatch
December 5, 2005
property inspector
It is a common dream; a seaside home with a stunning coastal view far from the complications of urban life, a place where peace of mind is more easily accessible. Unfortunately, these types of residential properties are increasingly difficult to find in the United States, and when available, are generally priced far beyond the budget of the average buyer in search of a viable real estate investment.

This is particularly true in southern California, where longtime residents have watched a steady stream of new buyers from outside their locale drive prices through the roof, and make the vision of a home with an ocean view virtually unachievable to all but the very wealthy.

It is a small wonder that many of these same people have begun searching for a safety valve, a venue where they can enjoy a quality of life that was once commonplace along California’s southern coast during the middle of the 20th century. To many, the friendly aura of the Baja California peninsula has become a warm, beckoning oasis where the dream of a relatively carefree seaside existence is far more easily attainable.

A growing number of new condominiums and other developments designed to cater to Americans seeking a residential or retirement villa south of the border now punctuate the busy toll road that runs along the coast south of Tijuana. There are two upscale golf courses along the trek as well; Real Del Mar located just north of Rosarito Beach, and Bajamar, which is situated about 15 miles north of the port city of Ensenada.

This new land rush is already funneling billions of dollars into Baja California’s economy, and all the signs point to the probability that this is just the beginning. In previous decades, most of the Americans moving to Baja California were of retirement age, but this is no longer the case. The demographics slice across the board, and include professionals such as physicians, architects and attorneys.

Baja’s culture has become so homogeneous with that of southern California, it is often difficult for many visiting its prime tourist destinations to accept the fact that they are actually in a foreign country. Vendors and locals frequently speak good English, and the U.S. dollar has practically supplanted the Mexican peso in some areas.

Unfortunately, a little over a decade ago, American newspapers and airwaves were filled with vivid stories focusing on foreigners who had been unceremoniously evicted from homes and property that they had purchased in Mexico. One of the most highly publicized incidents involved a number of beachfront residents near Punta Banda, just south of Ensenada.

Most of these individuals paid money to a local agrarian cooperative known as an Ejido, which did not actually hold a deed to the land. Sadly, these new buyers also failed to conduct an official title search, and were eventually left in the lurch when the Mexican courts understandably ruled that the actual titleholder was the true owner of the land.

Since that time, the Mexican legislature has amended the country’s Constitution so that foreigners are now allowed to set up a bank trust, known as a Fideicomiso, and also form private corporations. This change in policy now makes it possible for non-citizens to enjoy all the benefits of property ownership near the shoreline, which was previously forbidden.

Guillermo Valencia, partner in the law firm of Fernandez & Valencia, www.lawmx.com, located in the Rio District of Tijuana, regularly handles a variety of legal procedures related to foreign investment in Mexico. He is also one of only a handful of attorneys trained and certified in matters involving real estate purchases in Baja that are made by groups and individuals outside the country. In an effort to clarify any confusion about acquiring land in Mexico, he offers answers to a few of the most frequently asked questions.

1) What is the most common misconception that you encounter with new clients from the United States regarding their understanding (or misunderstanding) of Mexico’s land ownership laws?

“I think that the most common misconception is that they expect business will be conducted here the ‘American way’, and they then get frustrated when dealing with the manner in which things are done in Mexico. We have a more formal system that puts more emphasis on the written accord.

In addition, our bureaucratic apparatus is sometimes much less efficient than in the United States. This is another reason why getting good legal advice is so important. You have to consider that our common law system and the Spanish civil system are completely different legal institutions.

For example, in Mexico, a Notary Public is an attorney with a state or federal license to advise both parties with neutrality and draft instruments that are considered public documents. In order to properly close a real estate transaction, you need to have a notarized agreement and register and submit it before the Public Registry of Property.”

2) What actual ownership rights for foreign real estate investors are included in the bank trust configuration known as the Fideicomiso?

“Their ownership is not on the property itself, since they can not actually OWN any. Rather, they own beneficiary rights on the property derived from the trust.

The Fideicomiso, or bank trust, is an institution adopted from the common law system, and is very similar to a trust in the United States. It is an extremely versatile contract; it can be used for estate planning or as a vehicle to guarantee financial obligations, but the most common type of Fideicomiso that we see along the coast of Baja is the real estate trust.

The real estate trust enables foreigners, who are technically prohibited from owning property in the restricted zone 100 kilometers from the International Border or 50 kilometers from the coast, to legally act as owners. They can then build and live on the property, lease it, sell it and even inherit it.”

3) When is the formation of a Mexican corporation an appropriate vehicle for land ownership in Mexico, as opposed to obtaining a Fideicomiso?

“The Mexican foreign investment laws expressly prohibit direct acquisition by a Mexican corporation with foreign investment of properties that are destined solely for residential purposes.

If, however, the entity in question is also going to set up a business, or use the real estate for industrial purposes, then direct acquisition of the property by a Mexican corporation may be recommended.”

4) Is there any land in Mexico that can be purchased outright by foreigners without the need for securing a Fideicomiso or forming a Mexican corporation?

“Yes, if it is located outside of the restricted zone. But, since the border is just to the north, and Baja California has the Pacific Ocean on the west and the Sea of Cortez immediately to the east, the entire peninsula happens to lie within this zone.”

5) Do you generally suggest that your clients also purchase title insurance on the land that they purchase in Mexico, or are there some situations where it is not necessary?

“Yes, we do recommend it! The registration and notary system give the purchaser legal certainty, while the title insurance provides economic certainty. Also, if you seek insurance before acquiring the property, you will then know exactly what you are buying before you invest.”

6) There are many companies now claiming to offer title insurance for property in Mexico. In your professional opinion, which one of them so far has the best track record for good customer service?

“The ones we have been working with are Stewart Title and First American Title; they are both very professional. I also believe that other companies, such as Fidelity Title and Chicago Title are in the process of coming to Baja California as well. It really all depends upon our client’s preference.”

7) What is the most common pitfall for American real estate investors trying to buy land in Mexico?

“The most common pitfall presents itself when potential buyers don’t do their homework. You have to seek legal advice in order to do your due diligence or title study of the property in question.

Another institution in Mexico is the Ejido, which is an institution dating back to the 1930s, when President Lázaro Cardenas passed land reform legislation that seized land from former Haciendas and other vast, private landholders, and turned them into communal, collective land. Since the Constitutional amendments passed in 1994, however, Ejido land may now be reverted into private property after execution of the proper legal procedures.”

8) If you had one single piece of advice for foreign investors in Mexican real estate, what would it be?

“Once again, it is essential that buyers do their homework and seek professional legal advice before entering into any type of agreement to purchase property in Mexico, or anywhere else in the world for that matter.”

One thing is certain, what ever your reasons may be for considering an investment in Baja California real estate, there are countless opportunities for a fresh, new start in this magical world where the warm winds blow, and lines of pelicans can regularly be seen soaring only inches above the pounding surf.

Born in San Diego, California, Tom Gatch is a freelance writer who covers a wide variety of topics, including ongoing reviews for SanDiegoRestaurants.com, DiningOut Magazine, and regular features for The Log. His company, EL PUERTO Literary Consultants, provides professional copywriting support for markets in the United States and Baja California. You can reach him at: tlgatch@4dcomm.com.